November 9, 2007, Newsletter Issue #89: About Bridge Loans

Tip of the Week

A relative rarity in the home lending market, a bridge loan is a short-term loan designed to help bridge a gap in which the borrower is experiencing a cash crunch. The most common example of this is a home owner who has bought a new house but hasn't yet sold his existing home. This frequently happens when someone has to relocate for their job with little or no notice. Terms can vary widely on bridge loans with origination fees that are high. Most run for six months and are secured by the home the borrower is trying to sell. This is fine assuming you sell your house, but deals fall through, and markets crash. Before you consider a bridge loan, consider other options. Your best bet is to avoid getting yourself into this position in the first place. Timing the selling and buying of houses can be tricky business, but you're better off staying put until you sell your existing house. If you can't or don't want to do that, consider selling off other assets or borrowing against your 401(k). That way, you're paying yourself back, not another creditor.

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